Sweden's centre-right government plans a more expansive budget next year and the year after as it seeks to shield the country from the euro zone crisis, Finance Minister Anders Borg said on Friday. The Nordic state's public finances are among the strongest in Europe and its economy has outperformed, leading the government on Friday to raise its economic growth forecast for this year to 1.6 percent, from 1.l percent.
It cut its growth forecast for 2013 though, to 2.7 percent from 3 percent, and Borg said the risk of a worsening of the euro zone crisis could not be ignored and the strong Swedish crown was a worry for exporters. "We have been more careful (with state finances) and this has made room for manoeuvre," the finance minister told reporters at a government country residence in central Sweden.
"We want to go on the offensive and put energy into the Swedish economy," he said. The government was aiming for spending and tax cuts worth 23 billion crowns ($3.48 billion) in the 2013 budget, double this year's level, and 27 billion crowns in the 2014 finance bill, Borg said.
The 2013 budget would focus on infrastructure spending, including on railways, research and an improved investment climate. He also mentioned a cut in corporate tax, which the government had flagged before. However, he said the government, which will face elections in 2014 and currently lags behind the centre-left opposition in opinion polls, could not at the moment afford more of the big income tax cuts which were an earlier hallmark of Borg and Prime Minister Fredrik Reinfeldt.
"The combination of a fragile banking system and weak state finances in many parts of Europe mean that the risk for a worse development still prevails," Borg said in a statement. Sweden's economy has been surprisingly resilient this year thanks to rising exports and consumption, but a strong crown, which hit a 12-year high against the euro this month, now poses risks.
Borg told reporters it was worrying that exporters were taking a hit from the strong currency but said this highlighted the urgent need for the planned budget measures to increase competitiveness. "We will follow the exchange rate closely," he told reporters, adding it would be worrying if such currency strength became permanent. Some top companies have appealed to the central bank to reduce its key policy rate from 1.5 percent to offset the crown's strength. The bank's next rate announcement is due on September 6. Exports account for around half of Sweden's economic output and more than half of those go too European Union countries.
Source: Reuters
Link: http://www.brecorder.com/business-a-economy/189/1230465/